Surge to New 6-Year High in Sugar
While cocoa prices have benefited from improved global risk sentiment, near-term demand concerns remain a front-and-center issue for the market. As a result, cocoa prices may have to get past volatile financial market action today and tomorrow before they can find their footing. Above-average rainfall last week and more precipitation in the forecast for West African growing areas continues to be a source of pressure on the cocoa market. While Euro zone GDP came in higher than trade forecasts, year-over-year French CPI had a surprise uptick.
While a sizable net spec short position has provided plenty of fuel for short-covering, coffee’s improving demand outlook has led to a significant change in fortune during January. While the market may have risen “too far, too fast” so far this week, coffee should remain fairly well supported on any near-term pullbacks. ICE exchange coffee stocks rose by 8,775 bags on Tuesday to finish January at 861,495 bags, which was a third monthly increase in a row and the highest month-end total since June. On the other hand, this was the eight month in a row that ICE exchange coffee stocks finished the month below 900,000 bags, which has not occurred since December of 1999.
March Cotton closed higher yesterday, but spent the entire session consolidating inside Monday’s wide range down. Outside forces were positive enough to see better than just an inside day. Traders pointed to mill fixations as a reason for the support, as Monday’s down day encouraged some end user buying. Also supportive were a slightly weaker dollar and higher crude oil. Bloomberg reported that China’s mills are running about 90% of capacity as the nation’s cotton demand rebounds on their reopening. Mali has reduced its cotton output forecast for 2022/23 another 29% to 526,000 tonnes.
Sugar prices have risen to the highest level since November 2016 and benefited from bullish near-term supply developments. If key outside markets remain well supported, sugar prices may drive further to the upside. March sugar climbed to a new 6-year high this morning and a lower close today would represent a key reversal. The India Sugar Mills Associations (ISMA) revised their 2022/23 India sugar production forecast down to 34.0 million tonnes, which provided a sizable boost to sugar prices.
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